Flood insurance rate hikes begin taking toll on property market

Published: Saturday, January 4, 2014 at 10:31 p.m.

Last Modified: Saturday, January 4, 2014 at 10:31 p.m.

Hefty flood insurance rate increases are starting to have a pronounced impact on Southwest Florida's real estate market heading into the new year, hurting sales and upending the business in high-risk flood zones.

Lawmakers from Florida and other flood-prone states still hold out hope that the National Flood Insurance Program rate increases can be rolled back, but real estate professionals say the hikes are already taking a toll in certain neighborhoods.

Home sales have stalled, sellers are dropping prices and the mechanics of completing a deal are becoming more complicated.

“We've seen a lot of closings just fall through,” said Bob Strayer, owner of Strayer Surveying & Mapping in Venice, who conducts surveys of properties to determine their elevations for flood insurance purposes.

Since Congress failed to pass a flood insurance fix before adjourning for the holidays, a group of senators — including Florida Democrat Bill Nelson — from states with large numbers of flood policies have been pushing for a vote early this year on legislation that would delay the new rates.

The lawmakers say they secured a promise from Senate Majority Leader Harry Reid to bring the issue up for a vote. But they need 60 senators to agree, a high bar to reach. The Senate reconvenes Monday.

Southwest Florida's real estate industry has been lobbying to delay the rate increases. Sarasota Realtor David Clapp is hopeful lawmakers will “correct the insanity,” but in the meantime, he said, homeowners and real estate professionals need to face reality and educate themselves on the issue.

“Both sellers and buyers need to be proactive,” said Clapp, a managing broker with Re/Max Alliance Group.

Congress approved steep rate hikes to the National Flood Insurance Program in 2012 to help make up losses after Hurricane Katrina. Older, low-lying properties in high-risk flood areas are being targeted for the largest increases.

The new rates are being phased in for most property owners. But when a home sells, the new owner must pay the entire “full risk” rate at once.

One of Clapp's agents recently worked on a deal in which the property insurance went from $1,400 to $6,000. The seller had to drop the price, or the buyer was ready to pull out.

“It's dramatically affecting buyers,” Clapp said.

Real estate agents are being forced to change how they do business.

Buyers and sellers have been getting into disputes over money held in escrow.

Clapp now advises agents to include a contract provision stipulating that a deposit will be refunded if flood insurance costs are too high. Sellers should be aggressive about obtaining elevation certificates and flood insurance quotes early on, he said.dd

Strayer's company has been busy in recent months surveying property elevations.

He said it is not uncommon for older homes in coastal areas to be well below the “base flood elevation,” where a flood is expected every 100 years.

Petty pays $1,200 annually for flood insurance but if she were to sell the property — which is not waterfront — the new owner would have to pay between $7,000 and $8,000 under the reforms approved by Congress.

“I will never be able to sell my house,” she said. “That's the realistic view.”

Homeowners confronting steep rate increases have few options.

Strayer said flood vents can be installed in garages and other areas. They help water drain and reduce insurance premiums. Strayer's workers have inspected a few dozen new flood vents in recent months but “it's still kind of rare” he said. The insurance savings may not be significant enough for many properties.

Elevating a home is another possibility, but that tends to be expensive and impractical in many cases.

Homeowners who do not have a mortgage are not required to carry flood insurance.

Siesta Key-based Realtor George Marshall said cash deals already make up a big percentage of the island's real estate transactions, “which gives the owner the option” of having flood coverage) or not.

Marshall said it is too soon to tell if a large number of buyers will be willing to forgo flood insurance. The Michael Saunders & Company agent recently had a deal fall through on a first floor Siesta condo because the buyer needed a mortgage and the flood insurance was too high.

The condo is back under contract and Marshall hopes it will sell, but he would rather not have so much uncertainty.

“I hope this is something the Congress and the state will look at real hard in 2014 and see if they can't amend or ease something,” he said.

<p>Hefty flood insurance rate increases are starting to have a pronounced impact on Southwest Florida's real estate market heading into the new year, hurting sales and upending the business in high-risk flood zones.</p><p>Lawmakers from Florida and other flood-prone states still hold out hope that the National Flood Insurance Program rate increases can be rolled back, but real estate professionals say the hikes are already taking a toll in certain neighborhoods.</p><p>Home sales have stalled, sellers are dropping prices and the mechanics of completing a deal are becoming more complicated. </p><p>“We've seen a lot of closings just fall through,” said Bob Strayer, owner of Strayer Surveying & Mapping in Venice, who conducts surveys of properties to determine their elevations for flood insurance purposes.</p><p>Since Congress failed to pass a flood insurance fix before adjourning for the holidays, a group of senators — including Florida Democrat Bill Nelson — from states with large numbers of flood policies have been pushing for a vote early this year on legislation that would delay the new rates.</p><p>The lawmakers say they secured a promise from Senate Majority Leader Harry Reid to bring the issue up for a vote. But they need 60 senators to agree, a high bar to reach. The Senate reconvenes Monday.</p><p>Southwest Florida's real estate industry has been lobbying to delay the rate increases. Sarasota Realtor David Clapp is hopeful lawmakers will “correct the insanity,” but in the meantime, he said, homeowners and real estate professionals need to face reality and educate themselves on the issue.</p><p>“Both sellers and buyers need to be proactive,” said Clapp, a managing broker with Re/Max Alliance Group.</p><p>Congress approved steep rate hikes to the National Flood Insurance Program in 2012 to help make up losses after Hurricane Katrina. Older, low-lying properties in high-risk flood areas are being targeted for the largest increases.</p><p>The new rates are being phased in for most property owners. But when a home sells, the new owner must pay the entire “full risk” rate at once. </p><p>One of Clapp's agents recently worked on a deal in which the property insurance went from $1,400 to $6,000. The seller had to drop the price, or the buyer was ready to pull out.</p><p>“It's dramatically affecting buyers,” Clapp said.</p><p>Real estate agents are being forced to change how they do business. </p><p>Buyers and sellers have been getting into disputes over money held in escrow. </p><p>Clapp now advises agents to include a contract provision stipulating that a deposit will be refunded if flood insurance costs are too high. Sellers should be aggressive about obtaining elevation certificates and flood insurance quotes early on, he said.dd</p><p>Strayer's company has been busy in recent months surveying property elevations. </p><p>He said it is not uncommon for older homes in coastal areas to be well below the “base flood elevation,” where a flood is expected every 100 years. </p><p>Insurance premiums will increase exponentially for these homes.</p><p>Venice property insurance agent Mary Elizabeth Petty lives in a 1,450-square-foot house insured for $201,000. </p><p>The South Venice home is three feet below the base flood elevation.</p><p>Petty pays $1,200 annually for flood insurance but if she were to sell the property — which is not waterfront — the new owner would have to pay between $7,000 and $8,000 under the reforms approved by Congress. </p><p>“I will never be able to sell my house,” she said. “That's the realistic view.”</p><p>Homeowners confronting steep rate increases have few options.</p><p>Strayer said flood vents can be installed in garages and other areas. They help water drain and reduce insurance premiums. Strayer's workers have inspected a few dozen new flood vents in recent months but “it's still kind of rare” he said. The insurance savings may not be significant enough for many properties.</p><p>Elevating a home is another possibility, but that tends to be expensive and impractical in many cases.</p><p>Homeowners who do not have a mortgage are not required to carry flood insurance. </p><p>Siesta Key-based Realtor George Marshall said cash deals already make up a big percentage of the island's real estate transactions, “which gives the owner the option” of having flood coverage) or not.</p><p>Marshall said it is too soon to tell if a large number of buyers will be willing to forgo flood insurance. The Michael Saunders & Company agent recently had a deal fall through on a first floor Siesta condo because the buyer needed a mortgage and the flood insurance was too high.</p><p>The condo is back under contract and Marshall hopes it will sell, but he would rather not have so much uncertainty.</p><p>“I hope this is something the Congress and the state will look at real hard in 2014 and see if they can't amend or ease something,” he said.</p>